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UK construction output falls to decade low

IHS Markit’s UK Construction Purchasing Managers’ Index (PMI) fell to its lowest level since April 2009 in June, to a reading of 43, on the back of the sharpest drop in UK housebuilding demand for three years. This marks the fourth time the sector has contracted in the past five months. Economists were expecting a figure of 49.2. Any reading above 50 denotes growth, below represents contraction. Tim Moore, associate director at IHS Markit, said the figures revealed “weakness across the board” for the construction sector.

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Firms must report on climate change by 2022

Publicly listed companies and large asset owners will have to report on how climate change risk impacts on their activities by 2022, the City minister John Glen is set to announce. Speaking at a Green Finance Summit in London, Mr Glen will point out that the UK’s financial services sector must be at the heart of the country’s efforts to tackle climate change and meet a goal of net zero carbon emissions by 2050. Banks will be urged to play a bigger role to support the UK meeting its target by investing in sustainability and explaining their own exposure to the climate crisis while financial services firms will also be expected to disclose how climate change risk will hit their activities.

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Rise in borrowers taking out marathon mortgages

The number of borrowers taking out “marathon” mortgages lasting 35 years or more has reached its highest level since the 2011 recession. Figures from the Financial Conduct Authority reveal 28,310 mortgages running for 35 years or more were approved in 2017 – a 27% annual rise. Barclays last week extended the maximum term on its Family Springboard mortgage from 25 to 35 years, a further sign that first-time buyers are being encouraged to take out marathon deals. The FCA said 2.5% of mortgage approvals in 2017 were for marathon deals, compared with 1.6% in 2011.

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Bank freezes rates and cuts growth outlook

The Bank of England has kept interest rates on hold at 0.75% amid heightened no-deal Brexit fears and as UK growth falters. The MPC voted unanimously to keep rates unchanged as it cautioned the “downside risks” to growth had increased since its last set of forecasts in May. The Bank also trimmed its expectations for second quarter growth, predicting GDP will remain flat against a previous forecast for 0.2% expansion, after official data showed the economy dipped by a worse-than-feared 0.4% in April. However, the Bank reiterated that “gradual” rate hikes would be needed over the next three years to keep inflation to its two per cent target.

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Bank of England unconcerned about high LTV lending

The amount of loan-to-value mortgage lending with ratios above 90% is approaching pre-crisis highs, but the Bank of England’s executive director for financial stability has said the regulator isn’t concerned. Speaking at the University of Warwick, Alex Brazier continued to say that, although banks have a real appetite to lend, households don’t have the appetite to borrow. He said credit conditions in the mortgage market are “easy” and mortgage pricing is competitive.

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Asset finance market grows in April

According to figures from the Finance & Leasing Association, asset finance new business grew by 7% in April, compared with the same month last year. The data showed that new business in the plant and machinery finance and business equipment finance sectors rose by 8% and 9% respectively, while commercial vehicles finance new business was up 23% over the same period. Total asset finance for the month of April was £2.94bn (€3.32bn). The total excluding high value deals was £2.82bn, a rise of 10% year-on-year. By channel, direct finance was £1.48bn, a 16% year-on-year rise, while broker introduced finance was £561m, up 10% compared to April 2018. Sales finance came in at £779m, unchanged from last year. Geraldine Kilkelly, head of research and chief economist at the FLA, said: “The asset finance market has made a great start to the second quarter of 2019, recording its seventh consecutive month of new busines s growth in April.”

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Brexit an opportunity for SMEs as M&A deal value plunges

The SME sector outperformed larger firms when it came to mergers and acquisitions in the first quarter of the year. Overall, UK M&A was down 83.7% compared to Q4 last year, with business confidence shaken in the build-up to the March Brexit deadline. ONS data shows deal values fell from £38.8bn to £6.3bn in the first three months of 2019. But Mark Collings, chief commercial officer at Code Investing, said SMEs saw Brexit uncertainty as an opportunity for growth and M&A in the sector fared better than larger corporate firms. Daniel Domberger, partner at Livingstone, added: “M&A volumes are holding up quite nicely in this area as investors look to fulfil long-term strategic goals, and business leaders demonstrate clear growth trajectories.”

City AM

Retail sales suffer their worst month in 24 years

UK shoppers shunned the high street last month leading to sales plunging in May faster than at any time in the past 24 years, new data shows. Sales dropped 2.7% in the four weeks to May 25 compared with a month earlier, according to the British Retail Consortium-KPMG Retail Sales Monitor, making it the biggest fall since records began in January 1995. Helen Dickinson, the BRC’s chief executive said: “With the biggest decline in retail sales on record, the risk of further job losses and store closures will only increase. We have a broken tax system, which sees retailers paying vast sums of money regardless of whether they make a penny at the till, and yet the government is failing to act.”

The Daily Telegraph The Guardian

Banks reject 70% of small businesses

A report from Smith & Williamson reveals that 70% of small businesses fail to secure finance at the first attempt while two in five companies said that they had been turned down for funding more than three times. One in ten had made five or more unsuccessful attempts and nearly half said weak management was the reason given for the refusal. Inadequate business models and poor financial controls were also key reasons for losing out. Smith & Williamson said fast-growing companies with a concise business plan and an understanding of how much money they need were more successful than other small businesses but still found fundraising difficult.

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CBI warns of no-deal Brexit damage to business

CBI director general Carolyn Fairbairn has sent an open letter to all Tory leadership candidates warning that a no-deal Brexit would do “severe” damage to businesses. She said her 190,000 members desperately wanted an end to Brexit turmoil, adding: “Leaving the EU with a deal is the best way forward. Short-term disruption and long-term damage to British competitiveness will be severe if we leave without one. The majority of firms can never be prepared for no deal, particularly our small and medium-sized members who cannot afford complex and costly contingency plans.”

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Fines for breaking data rules rise 30%

British companies paid 30% more in fines last year for breaching privacy rules, according to a PwC report, with even bigger penalties forecast for this year. Marketing activities triggered the largest number of infringements last year, accounting for half the cases, with 64% of those resulting from telephone gambits. A quarter of enforcement actions related to personal data security breaches. Mark Taylor, a partner at Osborne Clarke commented: “While GDPR has made international compliance easier, it hasn’t unfortunately made it a one-size-fits-all approach everywhere.” Mr Taylor predicted that “enforcement activity will step up, with companies that are undertaking higher-risk processing likely to be most at risk”.

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Buyers return to housing market

More money entered the UK housing market in April than at any point since 2007, according to industry group UK Finance, with almost £9bn of home purchase mortgages approved for nearly 43,000 such loans. The number of mortgages was up 6% on the month and more than 11% on April 2018, while remortgaging also picked up – with more than 31,000 homeowners shopping around for a new loan in the month.

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Banks under pressure to join fraud compensation scheme

Some of Britain’s biggest banks are coming under pressure to sign up to a new voluntary scheme that offers protection to customers who fall victim to “authorised push payment” frauds. Eight lenders, including Barclays, Lloyds Banking Group and Royal Bank of Scotland, have signed up to the industry code, which came into force yesterday. But other banks including Co-op Bank, Tesco Bank and CYBG are yet to implement the scheme. Nicky Morgan, the Conservative MP and chairwoman of the Treasury committee, said: “It’s encouraging that some banks have signed up to the voluntary code… I would now encourage those who haven’t signed up to do so.” Gareth Shaw, of Which?, the consumer group, warned that “some banks are leaving their customers unprotected” by not signing up to the code. Elsewhere, the Mail reports that some banks are now forcing their online customers to tick a box that could later deny them a refund if they are defrauded. Lenders are demanding that customers confirm they are aware of the risks before they approve the payment – prompting fears that banks could use these agreements to avoid refunding victims.

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Buy-to-let mortgages down 10% in a year

The number of landlords taking out buy to let mortgages has fallen by nearly 10% in a year. UK Finance has disclosed 5,000 loans were completed in March – up 200 from 4,800 in February but a 9.1% decline year-on-year. The February figure also reflected a 7.7% drop in new mortgage completions over 12 months.

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Bank of England is watching mortgage price war ‘like a hawk’

Sam Woods, the deputy governor of the Bank of England, has said that regulators are watching a mortgages price war “like a hawk” and may need to impose stricter minimum capital requirements on lenders. The price war over the past two years may be good news for first-time homebuyers, but it was less good for a bank or building society concentrated in mortgages, Mr Woods warned. The Bank has said “ring-fencing” rules designed to protect high street operations from risks taken in lenders’ investment banking had contributed to the increased competition. His comments come after the Bank forced Metro Bank to correct how much capital it was setting aside to cover mortgages after under-reporting the risk from its loan book.

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GDPR breach notifications hit 14k

The Information Commissioner’s Office (ICO) has received a total of 14,072 data breach notifications since the introduction of GDPR in May 2018, while complaints from the public have hit 41,000 – up from 21,000. No fines have yet been issued in the UK over the new data laws, with the ICO saying that while they are “coming soon”, it wanted organisations “to focus on how data protection law can help firms to get it right… rather than how they might be punished if they get it wrong”. Figures show that across all the EU countries which have implemented GDPR, there has been a total of 89,271 notifications of data breaches and 144,376 complaints from the public.

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APIs and digitisation to transform mortgage market

The fifth annual intermediary mortgage survey from IRESS has revealed that APIs and digitisation are expected to transform the mortgage market, but intermediaries still want to see more real-time updates. The survey found that a third of lenders are in the process of implementing or are already accepting applications via APIs into their online intermediary platforms. Meanwhile, 96% of lenders also believe that Open Banking technology will improve the mortgage application process for customers over the next two years, up from six in ten lenders last year. Lenders believe that Open Banking technology will improve the process through the delivery of quicker, more accurate decisions, faster processing times and less requirement for documentation.

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OECD cautions BoE against raising rates amid Brexit uncertainty

The Bank of England has been warned against raising interest rates amid the Brexit uncertainty. The OECD predicted UK economic growth of just 1.2% this year and 1% next year.

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Average two-year rate continues to rise

The average two-year fixed rate has continued to rise according to data collected by Moneyfacts, reaching 2.48% – up one basis point from last month. Moneyfacts says rates within the 60% LTV category and the 95% LTV category have both dropped, with the average in the former declining from 1.91% to 1.90%, and the latter from 3.25% to 3.24%.

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Lenders urged to be more flexible

As growing numbers of workers join the gig economy, industry experts are calling on mortgage lenders to be more flexible towards people with unconventional working patterns. Paula Higgins, chief executive of the Homeowners’ Alliance, comments: “The mortgage industry and government need to wake up to the world in 2019 and do more to support the self-employed into home ownership.”

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Vector Capital Plc is a public limited company specialising in providing principal finance to the private and corporate sector.

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